Energy White Paper: time for green tax rebate

Hopefully, the government’s Energy White Paper due 12 July will leave plenty of room for further discussion. There’s a lot of anxiety, or worse, about energy costs among industry and consumers. The Energy Secretary said last weekend:

“We want to get out from under the volatility of these world markets. The best way we can do this is to save energy, make our bills much less sensitive to world market prices and get on in the long term … to clean, secure, green energy sources.”

Carbon pricing is essential to force the shift to low carbon energy supply. But the transition looks unjust. Major energy companies are making huge windfalls from energy price increases. We should look to the Australian government, offsetting its new carbon tax with tax cuts and compensation.

Australia’s PM, Julia Gillard, has just announced that from July 2012, 500 companies will pay £15 a tonne for their carbon emissions, making this the largest carbon trading scheme outside the EU. Australia generates more CO2 per head than any other developed nation, thanks to its coal fired stations. Half of the scheme’s revenues will be returned to households in the form of tax cuts and compensation payments. Two-thirds of households will get enough help to cover the entire cost of the scheme. About a third of the scheme’s revenues will go into a clean energy fund.

In the UK, the CO2 tax will rise to £30 a tonne by 2020 and raise £1.3bn a year by 2015, for the Chancellor. We seem to CO2 Tax first and ask CO2 Questions afterwards. The result has been a badly handled scramble to reassure industry and now consumers that all will be well. Perhaps. The government’s energy consultation showed that the carbon price (deceptively called a carbon price support) “might” lead to increases in average industrial electricity prices of up to 2% in 2013 and 6% in 2020. This is likely “to have a significant impact on a small, but important number of energy intensive sectors in the UK.”

The carbon tax will impact on fuel poverty, given scant attention in the government’s consultation. By 2020, the policy will increase the number of fuel poor households by between 100,000 and 200,000. Average household annual electricity bills increase by between £2 (1%) and £7 (2%) in 2013, rising to a maximum of £23 (5%) in 2020. These increases will take effect from 2013, just when Warm Front, providing grants from home insulation to fuel poor households, comes to an end, and before the Green Deal can start work.

In 2009, according to Consumer Focus research, the poorest 10% spent on average over twice as much of their budget on fuel compared with the highest tenth. Between January 1997 and December 2010, electricity prices rose by 67% and gas prices increased by 139%, compared with a rise of 48% in the overall Retail Price Index (RPI) over the same period.

Written by Philip Pearson

Philip is a former Senior Policy Officer in the TUC’s Economic & Social Affairs Department, working on issues around climate change, energy and transport.